Social Security is something we’ve all heard about, but how exactly does it work? It’s a pay-as-you-go system, which means that if you’re currently working, you’re paying into Social Security. Today’s workers and employers are funding the benefits for those who are receiving them right now. Now, if you’re anything like us, then at some point you’ve asked yourself these questions:
Will Social Security Run Out Before I Get To Retirement?
Here’s the good news: Social Security can’t actually “run out” because it’s constantly funded by people who are still working. When you hear talk about it “running out,” it usually refers to the surplus of funds that was built up over time. In the past, there were more workers contributing to the system than there were retirees collecting from it. But as people live longer and have fewer children, the balance has shifted. Still, it won’t dry up, even if changes to the system might be necessary down the line.
Who’s Eligible for Social Security?
To qualify for Social Security, you need to earn credits by working. You can earn up to four credits a year, and you need a total of 40 credits (or 10 years of work) to be eligible. When it comes time to calculate your benefit, the Social Security Administration looks at your highest earning 35 years of income.
When Can You Start Collecting Social Security?
You can start receiving Social Security as early as age 62, but there’s a catch: the earlier you start, the smaller your monthly checks will be, and that reduction sticks for life. The full retirement age – when you can collect 100% of your benefit – varies from 65 to 67, depending on when you were born. But waiting even longer has its perks. If you hold off on collecting until age 70, your benefit grows by 8% each year after your full retirement age. However, it doesn’t grow beyond age 70, so that’s the latest you should start collecting.
Social Security and Taxes
Your Social Security income can become taxable depending on your overall retirement income. A smart way to limit your taxable income is by using a Roth account, which can help you maximize your Social Security benefits.
When Should You Start Collecting?
This is a common question, and the answer boils down to finding your break-even point. In simple terms, it’s about figuring out how long you’d need to live to make more money by waiting to collect Social Security versus starting sooner. But don’t worry, you don’t have to do the math yourself. There’s a free calculator on
the Francis app that can help you figure this out.
Marriage and Social Security
Marriage brings a few more options into play. You can either collect your own Social Security or take half of your spouse’s benefit if it’s higher than yours. This won’t reduce what your spouse receives, it’s simply an alternative that could benefit you. The same goes for divorcees who were married for at least 10 years and are now single, they can also claim half of their ex’s benefit. Widowed spouses can collect on a deceased partner’s record as long as they were married for at least 9 months, and they can get 100% of the benefit once they reach full retirement age or start receiving a reduced amount as early as age 60.
There are a couple of important things to remember. First, you can’t collect your spouse’s benefit until they’ve started claiming theirs – unless you’re divorced, in which case you can start when you reach your retirement age. Second, if you begin taking the spousal benefit early before reaching full retirement age you will receive a permanently reduced benefit.
One strategy that can work for some couples is for the higher-earning spouse to wait until age 70 to claim their benefit, while the lower-earning spouse starts collecting their own benefit as soon as they reach full retirement age. This way, you start receiving income sooner while still maximizing the larger spousal benefit later. Keep in mind, though, that once you switch to your spouse’s benefit, the change is permanent – you can’t switch back.
Find your Benefits Estimates
To find your benefits estimates or apply for Social Security, visit www.ssa.gov, call 800-772-1213, or visit a local Social Security office. To avoid any delays, it’s best to apply four months before you want to start receiving benefits.
Get Personalized Help For advice, book an individual financial planning session with a Francis financial planner. Our financial planners are exclusively engaged by your employer to offer education, advice, and coaching on all money matters. We have no hidden sales agendas, so you can feel confident that you will always receive objective advice. Visit FrancisWay.com, to explore the features available to you in your “Participant Portal.” Better yet, download the free Francis app to select a planner and message them to get started!
